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Xerox Reports Second-Quarter 2011 Earnings

Press release from the issuing company

NORWALK, Conn., – Xerox Corporation announced today second-quarter 2011 results that include adjusted earnings per share of 27 cents. Adjusted EPS excludes 5 cents primarily related to the amortization of intangibles, resulting in GAAP EPS of 22 cents.

"During the second quarter, our disciplined focus on scaling our services business and delivering operational improvements helped to increase bottom-line results and generate operating cash, positioning us well to increase our earnings expectations for the full year," said Ursula Burns, Xerox chairman and chief executive officer.

Second-quarter revenue of $5.6 billion was up 2 percent or down 1 percent in constant currency. Revenue from technology, representing the sale of document systems, supplies, technical service and financing of products, was flat or down 4 percent in constant currency. This was primarily due to supply constraints resulting from the natural disaster in Japan. The company noted that the impact on costs and revenue from the supply chain-related challenges were expected in the second quarter and that the situation is improving. "We're seeing steady progress and making all the necessary investments to respond to customers' needs," said Burns. "As a result, we are on track to reduce backlog while meeting new demand in the third quarter, and we remain confident we'll return to normal operations in the fourth quarter."

Revenue from services was up 6 percent or 4 percent in constant currency, reflecting growth in business process and document outsourcing that offset a decline this quarter in IT outsourcing. Signings for Xerox's services totaled $3.5 billion in the second quarter, up more than 15 percent from last quarter and down 10 percent on a trailing 12-month basis due to longer lead times for signing certain multi-year outsourcing contracts and the cyclicality of large deals.

"Our leadership in managed print services contributed to 10 percent revenue growth in our document outsourcing business, and our diverse offerings in business process outsourcing resulted in 9 percent BPO growth," added Burns. "As important, our pipeline remains very strong – up 21 percent – helping to fuel our healthy annuity stream for the long term."

Second-quarter gross margin was 33.4 percent, and selling, administrative and general expenses were 19.9 percent of revenue. Operating margin of 10.4 percent was up 0.3 points from the second-quarter 2010.

Xerox generated $347 million in operating cash flow during the second quarter. For the full year, the company lowered guidance to $2 billion to $2.3 billion in operating cash flow. Xerox reiterated its plan to use $1 billion in available cash for modestly- sized acquisitions and share repurchase. The company expects to resume its stock buyback program in the third quarter and plans to repurchase approximately $700 million of stock through the second half of this year.

Xerox expects third-quarter 2011 GAAP earnings of 20 cents to 22 cents per share. Third-quarter adjusted EPS is expected to be 24 cents to 26 cents per share.
The company raised its full-year 2011 GAAP earnings expectations to 91 cents to 96 cents per share. Full-year adjusted earnings are expected to be $1.07 to $1.12 per share.


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